Monday, June 13, 2011

Quality Systems Inc. (NASDAQ: QSII) Q3 2011 Price Target

Recent price: 78.84$
P/E Ratio: 37.28
3 Months Target Price: 65$

Company Description
According to data provided by Reuters, Quality Systems, Inc. develops and markets healthcare information systems that automate certain aspects of medical and dental practices, networks of practices, such as physician hospital organizations (PHOs) and management service organizations (MSOs), ambulatory care centers, community health centers, and medical and dental schools. The Company also provides revenue cycle management (RCM) services through the Practice Solutions Division. The Company operates in three segments: NextGen Division, the QSI Dental Division and the Practice Solutions Division. On August 12, 2009, the Company acquired NextGen Sphere, LLC (Sphere), a provider of financial information systems to the small hospital inpatient market. On February 10, 2010, the Company acquired Opus Healthcare Solutions, Inc. (Opus), a provider of clinical information systems to the small hospital inpatient market.

Confidence Margins
Strong resistance $100.00 (-27%)
Light resistance $91.57 (-16%)
Light support $72.18 (+8%)
Strong support $58.35 (+26%)

Quality Systems Inc. has been highly bid up by the markets over the past six months. Most valuation metrics indicate that the company is overvalued compared to it's peers in it's industry even they have pretty much the same growth rates. The recent fall in it's stock price will continue until the company comes to par with it's industry.

Entry strategy
For the cautious investor:
Sell short the stock for 78$ or more.

For the risk-taking trader:
The September 2011 75$ out-of-the-money put option contract seems to be the right position to take, they can be acquired for about 400$ per contract.

Exit Strategy
For the cautious investor:
Buy to cover when the stock reaches 65$, or keep it until 60$ if you are more bullish in your own analysis. 

For the risk-taking trader:
The contracts should be kept until the underlying reaches 65$. This should provide a very interesting return if the underlying reaches the target price as the contracts will get in the money.

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